Thursday, March 30, 2006

Safe Harbor

The following post about the inverted yield curve was submitted by a client of FalkerInvestments.

“The Fed Chairman said recently that the Fed is studying the concept that a growing excess of global investment liquidity (which may continue to grow indefinitely) has found its way into the long term U.S. Treasury market. This excess global investment liquidity may be the principal source/cause of the current U.S. inverted yield curve. If this supply of liquidity continues to exceed alternative business investment opportunities on a global basis, an inverted yield curve could become the rule, not the exception.

“Apparently an excess of global investment liquidity was the principal cause of an inverted yield curve situation, which existed for a number years during the late 50's and early 60's, until Federal deficit spending associated with the Vietnam War and a fear of long term price inflation came to dominate the thinking of global investors, who abandoned long-dated Treasuries, thereby causing long-term interest rates to escalate relative to short term interest rates.

“Let's face it, the USA, even with all of its many problems, is still the safest harbor in the world for investors to "park" long term idle investment capital.”

-FI Client

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